Growing Tax Pressures on Brazil’s Gambling Industry: A New Chapter
The licensed gambling sector in Brazil is facing intensified scrutiny as proposed tax increases loom, with hints that these could go even higher, as noted by the country’s vice president.
Recently, the Brazilian government published a provisional measure aiming to elevate the tax on gambling operators to 18% of gross gaming revenue (GGR). This step is detailed in PM No. 1,303, which revises Law No. 13,756/2018 concerning tax regulations on betting activities.
Out of the newly proposed 18% tax, a portion—6%—will earmark funds for social security and healthcare contributions, while the remaining 12% is designated for vital sectors like sports and education. Although this provisional tax adjustment takes effect immediately, it awaits ratification from both the Senate and the Chamber of Deputies to become permanent.
On Sunday, Minister of Finance Fernando Haddad confirmed the government’s push to raise the GGR tax from 12% to an 18% rate, marking a significant increase of 50%. This announcement has stirred concerns within the industry, particularly following the revocation of a decree aimed at escalating the financial transaction tax (IOF) from 0.38% to 3.5%.
To mitigate the fiscal effects of nixing the IOF decree, figures like Aloizio Mercadante, president of the National Bank for Economic and Social Development, have advocated for an uptick in taxes on the gambling sector.
Addressing Illegal Gambling
Alongside the tax hikes, PM No. 1,303 also takes a firm stance against illegal gambling, a persistent issue in Brazil. The government has adjusted betting regulations under Law No. 14,790/2023, now requiring telecommunications companies to maintain a consistent communication channel with the regulating Secretariat of Prizes and Bets. This channel aims to enhance cooperation in shutting down illicit gambling operations.
Furthermore, Article 21 of the same law has been revised to ensure that telecommunication firms implement comprehensive strategies to counteract illegal gambling websites. They are now expressly prohibited from collaborating with black market operators. The law also increases the government’s authority to sanction illegal betting activities and addresses issues like match-fixing.
Earlier estimations from the Brazilian Institute of Responsible Gaming (IBJR) indicated that illegal operators accounted for approximately 60% of the overall betting market, despite the establishment of a legal framework on January 1st.
Industry Backlash Against Tax Increase
The gambling industry has reacted strongly against the proposed tax increase, with the IBJR leading the charge. The organization expressed considerable frustration, citing that the legal market has already remitted over BRL 2.3 billion ($415.3 million) in license fees while planning financial strategies based on the earlier 12% GGR tax.
Industry stakeholders argue that mid-term changes to the tax structure could disrupt the financial health of onshore operators. The IBJR articulated, “This measure is unacceptable, generating legal uncertainty and endangering public revenues.”
Moreover, the organization warned that the heightened tax rate could inadvertently drive more customers toward illegal alternatives, projecting that the share of illegal operations could rise from 50% to about 60%. This increase could result in estimated losses exceeding BRL 2 billion annually in potential tax revenue.
Future Tax Possibilities
Despite the industry’s outcry, Vice President Geraldo Alckmin hinted at the possibility of further increasing the gambling tax rate. Reports from CNN Brasil reveal his suggestion that the government might work with Congress to push the tax burden on legal operations beyond the 18% currently proposed.
At a recent event with the Brazilian Association of Supermarkets, Alckmin remarked, “While the initial proposal is 18%, there is room for us to enhance this even further.” He emphasized the importance of increasing taxes on gambling to safeguard families from potential negative consequences.
As these developments unfold, the intersection of tax policy and gambling regulation in Brazil will be a focal point for both operators and regulators alike, poised to shape the future of the industry in the country.